The Bottom Line: Vanguard is good for retirement investors with high account balances, not beginners or active traders.
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Pros & Cons
Large mutual fund selection.
Over 50 commission-free ETFs.
Leader in low-cost funds.
Helpful customer support.
High trade commissions.
No trading platform or tools.
Limited research and data.
Vanguard is synonymous with low-cost investing: The company has a solid reputation for the well-below-average expense ratios investors pay on its index funds and exchange-traded funds. For long-term investors looking to pair a buy-and-hold strategy with the lowest-cost offerings, it's hard to beat the service and selection found with Vanguard. New features added recently include commission-free online transactions on about 1,800 ETFs; lower investment minimums for nearly 40 of its lowest-expense index funds; and an expanded lineup of proprietary, low-cost, socially responsible ETFs.
Vanguard's low-cost model doesn't translate so well beyond the buy-and-hold strategy, and active traders will likely be disappointed by this stock broker. Vanguard doesn't have a trading platform; non-index-fund investors can score better trading costs elsewhere; and its commission schedule penalizes most investors who trade more than 25 times per year.
Vanguard is best for:
Long-term or retirement investors.
Those who prefer low-cost investments.
Index fund and ETF investors.
Investors with high account balances.
Where Vanguard shines
Low costs: Vanguard pioneered low-cost funds — founder Jack Bogle actually invented the index fund — so if those are your game, you’re in excellent hands with this brokerage. Of course, competitors have taken note, and Charles Schwab and Fidelity both have drastically slashed costs (in some cases lower than Vanguard) to attract cost-conscious investors. Still, Vanguard remains the standard bearer; many automated portfolio management services, such as robo-advisors, use its ETFs to keep expenses low. Vanguard also expanded its lineup of ETFs for socially conscious investors, adding two low-cost funds in late 2018.
Vanguard’s mutual funds and ETFs aren’t just low cost; they’re significantly less expensive than the industry average. Vanguard’s average expense ratio is 0.11%, and the typical equity mutual fund carries an expense ratio of 0.62%. (That’s an asset-weighted average from Morningstar. “Asset weighting” more accurately reflects investor costs because it weights larger funds — with more investors — more heavily when calculating averages.)
Expenses can make or break your long-term savings. If you invested $100,000 and made a 6% annual return, you'd have nearly $39,000 more after 30 years if you paid a 0.25% expense ratio than if you paid 0.50%.
Number of mutual funds and ETFs: In case you haven't noticed yet, Vanguard's bread and butter is low-cost funds. A solid portfolio can be constructed from just a handful of mutual funds or ETFs (such as these simple portfolio strategies), but Vanguard makes sure you're not left wanting for options. It boasts an impressive collection of 3,000-plus no-transaction-fee mutual funds, though that's behind the 4,000-plus at both E-Trade and TD Ameritrade. But in 2018, Vanguard expanded coverage of commission-free online transactions to nearly 1,800 ETFs, which includes 80 of its own ETFs.
Vanguard doesn't offer promotions or bonuses; instead, it touts itself as a low-cost leader — and this is the very reason the broker is a popular choice for long-term investors who don't plan to actively trade.
Admiral Shares: What do you do when you're already low? Go lower. Admiral Shares are a class of Vanguard mutual funds that boast super low expense ratios — as in 39% lower than the company's standard fund share class — and are the broker's way of passing along savings to larger account holders. New this year? Vanguard recently lowered the minimum investment threshold for 38 index funds, to $3,000 from $10,000, and plans to add Admiral Shares to five additional index funds in early 2019. That said, higher minimums persist for other funds ($50,000 for most actively managed funds and $100,000 for certain sector-specific index funds).
There’s little question that Vanguard caters to higher-net-worth investors; its robo-advisory arm, Vanguard Personal Advisor Services, has an investment minimum of $50,000, for example. And Admiral Shares won't benefit lower-net-worth investors. Vanguard says it automatically evaluates fund accounts for Admiral Shares eligibility, but if a balance in the fund drops below the minimum requirement, the account may also be automatically converted back. (Looking for help managing your investments? Here are our top picks for robo-advisors.)
Investor education: Like other retirement-oriented brokers, Vanguard offers a wealth of retirement planning tools and resources on its website. Investors can learn about investment options and prioritizing their goals, predict when they'll be able to retire with high-quality calculators and tools, estimate their retirement expenses and weigh the benefits of converting a traditional IRA to a Roth.
Where Vanguard falls short
Trading: Vanguard doesn’t target active traders. In fact, its pricing structure discourages the strategy, in some cases even increasing commissions for investors who trade more than 25 times per year. (Other brokers such as Ally Invest actually discount commissions based on volume, in Ally's case down to $3.95 per trade.) And Vanguard doesn’t provide a trading platform or many of the analysis tools typically offered by brokers that support stock trading. Rather, trades are routed elsewhere for execution. If this is a deal breaker, check out TD Ameritrade, which has three highly regarded platforms.
Stock trade commissions are scaled based on the assets a trader has invested in Vanguard index funds and ETFs. Those with less than $50,000 invested pay $7 per trade for the first 25 trades and $20 per trade for subsequent trades.
Once your fund investment crosses the $50,000 mark, online stock trades cost a mid-range $7 no matter how many you execute; that cost drops to just $2 a trade for fund investments of $500,000 or more. Those with $1 million or more in Vanguard funds can make a limited number of trades for free. Schwab has said that "many" investors pay $2 or less for online equity transactions — which would speak again to how it caters to higher-net-worth investors.
» Interested in trading? See our best brokers for stock trading
Fund minimums: Mutual fund minimums are common, don’t get us wrong. But some competitors waive them on select funds if investors agree to monthly auto-deposits. Most Vanguard retirement funds and the Vanguard STAR Fund have investment minimums of $1,000, and other Vanguard funds carry minimums of $3,000. That initial minimum purchase amount of $1,000 to $3,000 will simply be too high for many beginner investors.
Account service fee: You can avoid this easily by signing up for email delivery of account statements and fund prospectuses. Otherwise, you'll pay a $20 annual fee. Still, this fee is largely unusual now among most brokers.
Is Vanguard right for you?
Ask yourself this question: Are you part of Vanguard’s target audience of retirement investors with a relatively high account balance? If so, you’ll likely find no better home. You really can’t beat the company’s robust array of low-cost funds.
Investors who fall outside of that audience — those who can’t meet the fund minimums or want to regularly trade stocks — should look for a broker that better caters to those needs. (Need help figuring out what you want in a broker? Visit our guide to brokerage accounts.)